I know from conversations with D&O insurance professionals outside the United States that they find it somewhere between astounding and incomprehensible that a company whose unsponsored level 1 ADRs trade over-the-counter in the U.S. can be subject to a U.S. securities lawsuit – but, as discussed in prior posts (here and here), that is what the Ninth Circuit and District Court held in the Toshiba securities lawsuit. However, a recent ruling in a securities suit involving global mining company Glencore plc suggests a means by which non-U.S. companies with unsponsored Level I ADRs in the U.S. nevertheless may still be able to avoid litigation in the U.S. In a July 31, 2020 ruling, District of New Jersey Judge Susan Wigenton granted the company’s motion to dismiss ADR investors’ securities suit against the company on forum non conveniens grounds.
Glencore is a global mining company incorporated under the laws of Jersey, United Kingdom and with its headquarters located in Switzerland. Glencore Level 1 American Depositary Receipts (ADRs) trade over the counter (OTC) in the U.S. The Glencore ADRs are unsponsored, meaning that they were issued without the participation or approval of Glencore.
In 2018, news reports surfaced alleging that the company was investigation for briberies in which the company supposedly engaged in the Democratic Republic of Congo, Venezuela, and Nigeria. The company’s share price declined on this news.
In a subsequently filed securities class action lawsuit, investors who had purchased Glencore ADRs OTC in the U.S. alleged that the company made false and misleading statements about the its involvement in bribery and corruption activities, in violation of the U.S. securities laws. The complaint names as defendants two officers of the company. Both of the individual defendants are citizens of countries other than the United States and both reside in Switzerland.
The defendants filed a motion to seeking to have the plaintiffs’ complaint dismissed on multiple grounds.
The July 31, 2020 Opinion
In a July 31, 2020 Opinion marked “Not for Publication,” Judge Wigenton granted the defendants’ motion to dismiss the plaintiffs’ action on forum non conveniens grounds. Because of her ruling on this issue, she declined to address the other grounds on which the defendants had sought dismissal.
Judge Wigenton opened her analysis of the defendants’ motion by noting that pursuant to the doctrine of forum non conveniens, “a court may refuse to hear a case despite having jurisdiction if doing so would better serve the parties’ convenience and would be in the interests of justice.” The four factors the court must consider in analyzing forum non conveniens arguments, the court said, are: the amount of deference to be afforded the plaintiffs’ choice of forum; the availability of an adequate alternative forum; relevant private interest factors; and relevant public interest factors.
Judge Wigenton first concluded that in this case the plaintiffs’ choice of forum should be accorded less deference. She noted that the plaintiffs had not alleged they had any connection to New Jersey, nor had they alleged that Glencore had any offices or subsidiaries in New Jersey. She noted further that the plaintiffs did not refute the defendants’ contention that all of the alleged misrepresentations were crafted and approved in Switzerland, adding that “there is no indication that New Jersey houses any evidence relevant to this issue.”
Judge Wigenton also found, with respect to the question whether the plaintiffs had an adequate alternative forum, that the defendants had indicated that they would consent to jurisdiction in Switzerland for plaintiffs’ claims, and that Switzerland’s judicial system permits the adjudication of the subject matter of the plaintiffs’ securities law claims.
Finally Judge Wigenton concluded that both private and public interests supported dismissal. With respect to private interests, she noted the location of documentary evidence and witnesses outside of the United States “all practical considerations” weigh against litigating the matter in New Jersey. With respect to the public interest factors, Judge Wigenton noted that “there is no apparent connection to New Jersey,” and because the “locus of the dispute lies in Switzerland” it would be “unfair” to burden New Jersey citizens with jury duty and for the plaintiffs’ case to further burden the court’s already busy docket.
It should be noted at the outset that this case really didn’t have anything to do with New Jersey, which clearly weighed heavily in Judge Wigenton’s decision. That is not always going to be the case when a plaintiff sues a non-U.S. company in a U.S. court. It isn’t clear why these plaintiffs (or, perhaps, their lawyer) chose to file their lawsuit in New Jersey; had they instead chosen to file their lawsuit in their state of residence or in a U.S. state in which Glencore has facilities, perhaps the analysis might have been different.
However, even though there are circumstances here that made the court’s consideration of forum non conveniens factors somewhat distinctive, the fact is that the defendants were able to get the case against them dismissed, leaving the plaintiffs with the alternative of pursuing their claims in Switzerland.
The fact that these defendants were able to get these claims dismissed may hearten those who are troubled by the courts’ conclusions in the Toshiba case that a non-U.S. company can be subject to a securities liability action in the U.S. even if the only securities of the company trading in the U.S. are ADRs that the company did not sponsor.
The particularly reassuring aspect of Judge Wigenton’s dismissal here is that by considering and deciding the forum non conveniens issues, she concluded that she did not have to reach the substantive question of whether, under the U.S. Supreme Court’s decision in the Morrison case, the U.S. securities laws apply to plaintiffs’ OTC purchase of the company’s unsponsored ADRs.
However, as the Mintz law firm noted in its memo about this case to which I linked above, Judge Wigenton’s clear skepticism that these case belonged in the United States is arguably inconsistent with the courts’ rulings in the Toshiba case. Clearly, the district court judge in Toshiba (at least after the Ninth Circuit reversed his original ruling dismissing the Toshiba case) was not troubled by the fact that the case was going forward in the U.S; indeed, as discussed at length here, in his January 2020 ruling in the case, the court in that case rejected the defendants’ argument that the plaintiff’s allegations against the defendants under Japanese securities laws should be dismissed on forum non conveniens grounds.
One final problem with Judge Wigenton’s ruling for other defendants who may want to try to rely on her decision is that she labelled her opinion “Not for Publication.” Perhaps all these means is that she did not want to opinion published in the official reporter. Otherwise, the statement is meaningless, as the opinion is freely available on the Internet, so notwithstanding the caption, the opinion clearly has been published. However, the not-for-publication label may affect the willingness of other courts to rely on her opinion. (Under Federal Rule of Appellate Procedure 32(a), parties may freely cite to unpublished opinions, though they may have no precedential value).
Though the ruling in the Glencore case will not put an end to the controversy about whether a company can be forced to face a U.S. securities suit even though it did not sponsor the ADRs trading in the U.S., it certainly does introduce an interesting new wrinkle. As a minimum, it shows that, notwithstanding Toshiba, there may be ways for companies with unsponsored ADRs trading in the U.S. to try to avoid having to face a U.S. securities lawsuit.
Readers concerned about the continuing possibility that companies with unsponsored Level I ADRs trading in the U.S. could be subject to U.S. securities litigation may be interested in the guest post I published earlier this year, in which the Norton Rose law firm and AIG discussed specifically steps companies can take to try to avoid this liability.